Smart Investment Opportunities Within the Smartphone Industry
Greg is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I am sure that most of you have heard the popular saying "this is the best thing since sliced bread", which is used often in sales when describing an innovative product. Well, in my opinion, smartphones are better than sliced bread!
A decade ago, it was inconceivable that a phone could be utilized for functions such as internet browsing, e-mail, verbal capabilities (Siri), and photos. As impressive as these functions are, I believe that the capabilities of smartphones will continue to improve, and that the smartphone industry will continue to grow significantly. As a result, I believe that the smartphone industry will remain an attractive industry to invest in.
You cannot mention smartphones without including Apple's iPhone in the conversation. The iPhone was one of the most innovative and successful product launches ever and remains one of the main players in the smartphone industry. The iPhone dominated the industry for about five years, but there is no doubt that Apple's competitors have made significant progress in developing products that can compete with it.
Currently, Apple's main form of competition is Android powered smartphones. Google's purchase of Android in 2005 was a wise acquisition that enabled them to get into the smartphone industry by utilizing the successful Android operating system to power various smartphones such as the Samsung Galaxy S4.
Google's success in the smartphone industry is a great addition to its large number of successful products and services such as search engines, YouTube, and Google Earth.
Do not forget about other smartphone manufacturers such as BlackBerry and Nokia (NYSE: NOK). Both of these companies were blindsided by the iPhone's success, but they are attempting to rebound with new smartphone products in an effort to be competitive in the smartphone industry.
Who will win the smartphone battle?
In case you did not notice, there is currently a battle royal going on in the smartphone industry. Who will win this battle? In my opinion, there will not be a clear winner over the long-term.
I believe that there will be multiple products that will thrive in the industry, and I believe that the iPhone and Android smartphones will remain at the top for the foreseeable future. For this reason, I believe that Apple and Google are two excellent investment opportunities due to their leading positions in the smartphone industry as well as their many other successful products and services.
I consider BlackBerry and Nokia to be speculative plays in the smartphone industry. They both have new products that have achieved some recent success, but this success must accelerate in order for BlackBerry and Nokia to get back to sustained profitability.
Although BlackBerry's new Z10 smartphone is having some success, my speculative smartphone pick is Nokia, due to its successful partnership with Microsoft's (NASDAQ: MSFT) Windows 8 operating system. Microsoft has created some renewed optimism with its share price getting back to over $33, and I believe that its partnership with Nokia will help the Lumia series of smartphones gain some traction as well as create additional value for Microsoft shareholders.
The Lumia 521, a new smartphone product that will be available for below $150, should provide a boost to Nokia and Microsoft's smartphone sales efforts. The initial sales results indicate that there is a huge market for the Lumia 521, especially in developing markets.
Another way to Invest in the smartphone Industry
There is a constantly increasing demand for voice, internet, social networking, and streaming (videos & movies) capabilities. As a result, the infrastructure required to provide high-speed wireless data for these capabilities is constantly growing. American Tower (NYSE: AMT) is the leading provider of this infrastructure.
Regardless of the outcome of the smartphone battle, American Tower will prosper. They own and operate a global portfolio of over 54,000 wireless and broadcast communication properties. American Tower leases antenna space to a wide variety of tenants, including wireless service providers, government agencies, and radio and television broadcast companies.
American Tower's growth opportunities include increasing its customer base at its currently owned towers and expanding its portfolio of properties by building and acquiring towers.
American Tower's growth over the last decade has been impressive. Revenue has grown from $632 million in 2003 to $2.9 billion in 2012, and net profit has increased from a substantial loss to $637 million over this same period. American Tower's dividend yield is only 1.3%, but they have increased their payout for four consecutive quarters, from $0.21 to $0.26. With a payout ratio of 64%, I believe that this streak will continue.
American Tower's P/E is 56, which is higher than I typically prefer, but their predictable, impressive growth pattern should continue well into the future, providing significant capital gain and income potential.
The Foolish bottom line
Each particular brand of smartphones has a group of die-hard fanatics. However, in my opinion, there are multiple outstanding smartphone products, and these products will continue to improve.
As a result I believe that that Apple, Google, and Microsoft are excellent companies to consider including as part of a diverse, well managed portfolio. Nokia is more speculative, but offers very high rewards if their turnaround efforts are successful. American Tower offers an alternative, but very attractive way to invest in the smartphone industry.
It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.
Greg Williamson owns shares of Nokia, Microsoft, and American Tower . The Motley Fool recommends American Tower . The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!